Banks Allegedly Overcharged Government for Foreclosure Expenses

Federal prosecutors in New York have launched an investigation into the practices of at least five banks to determine whether they overcharged taxpayers for expenses incurred during foreclosures of federally-backed mortgage loans.

Reuters reports that five banks have disclosed they have received subpoenas from the U.S. Attorney’s Office in Manhattan, requesting information on claims regarding foreclosed loans that were either guaranteed by Freddie Mac or Fannie Mae or insured by the Federal Housing Administration.

Miami foreclosure defense lawyers understand these requests come several years after the peak of the housing crisis. Despite some pointed efforts to salvage the integrity of the mortgage servicing system, the fact is we are seeing the same issues over and over again.

The director of the National Association of Consumer Advocates was recently quoted as saying the problem stems from the fact that the entire mortgage servicing model is built on efforts to try to nickle-and-dime everyone, collecting as many fees as possible along the way.

The investigation was launched as part of the Financial Institutions Reform, Recovery and Enforcement Act. This law was passed back in the 1980s, in the wake of the savings-and-loan crisis. It’s one of the primary tools that the U.S. Justice Department has in prosecuting banks for illegal acts. It hasn’t been used nearly as often as we would have liked to have seen in the wake of the housing bubble burst and economic meltdown.

Still, there was one earlier investigation by this same office under this same law (as well as under the False Claims Act) that resulted in a $1.1 billion settlement with four major banks, including JPMorgan Chase. A separate claim resulted in a $2.1 billion settlement with Bank of America, following a jury finding that the firm’s derivative, Countrywide, sold defective mortgages to both Freddie and Fannie.

It’s estimated that roughly 10 percent of the loans serviced by big U.S. firms from 2009 through 2012 either became delinquent or foreclosed. The dollar losses topped $7 trillion.

Part of what the current probe is analyzing, according to those close to the investigation, are the practices of foreclosure-related costs incurred by the bank’s legal representatives. There is some question about whether those law firms misrepresented the costs of their representation in foreclosure cases. Those costs were then ultimately passed on to investors, purchasers and taxpayers – which would be a violation of the law.

While on average, foreclosures cost between $1,000 and $3,000 (depending on the state and the kind of foreclosure it is), these firms were allegedly indicating that foreclosures were costing hundreds of dollars more than they were. For example, one firm charged $150 to post a notice of foreclosure on the property door. That service should have only cost about $25. There were other instances wherein firms indicated they were paying some $225 more per filing than they in fact were.

These costs were then passed on to the government – i.e., the taxpayers.

“ I would like to thank you for all the help you gave me. I have 2 children and was served a foreclosure notice and my husband left our home. I went to the government agencies and I tried to work with my mortgage company, but was left frustrated and confused. I was scared for my children and myself. Someone suggested I go to your office... ”

“ I am convinced that God put you in my path when I was desperately searching for help with the foreclosure case against me. By listening to you speak on your weekly radio show “Debt Warriors” I knew you were the one that could help me fight and defeat the corrupt Bank of America (BOA)... ”

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